Newer, Speedier Networks Don’t Always Top Forbearers

The speed of the network should determine the speed of business communication.

In a time when the network was constructed around horses and delivery boys, a document-centric model of invoices, purchase orders, bought ledgers and the like made perfect sense.

In a world of hyper-connectivity and streams of information that the Internet and the cloud offer, do 19th century (or even earlier) business documents still make sense?

History shows us how network speed changes have dramatically impacted business. According to Tom Standage, author of “The Victorian Internet,” before the introduction of the telegraph messages between New York and Chicago could take a month to arrive. After its introduction they were almost instant. “The result was an irreversible acceleration in the pace of business life which has continued to this day,” he said.

“New York merchants dealing in international commerce received updates from their foreign associates once or twice a month, though the information obtained in this way was usually several weeks old by the time it arrived. Those involved in national trade would be visited by their country customers twice a year on their semiannual visits to the city, and spent the summer and winter resting.”

The impact of the telegraph, which Mr. Standage asserts was arguably one of the most disruptive communication technologies of modern time, transformed business. The impact of the cloud has yet to be felt, but according to the CEO of a Danish start-up, it’s impact will be even more profound.

Christian Lanng is the CEO of Tradeshift, which started life as an e-invoicing company but is rapidly expanding to becoming a data exchange platform. “We are connecting data directly between customers and suppliers. Instead of having some supplier in Brazil sending his paper invoice to the local branch office, which is then shipped to India, typed in and then processed to some ERP system, we are connecting it real time.”

One of the problems for getting companies to work together is exchanging data; different companies use different data structures. Underpinning Tradeshift is a common data language, Uniform Business Language, that allows companies operating on the platform to exchange structured data in a common machine-readable format. UBL is written by John Bosak often credited as the father of the original XML, of which it is an instance, and who sits on Tradeshift’s board.

Tradeshift can connect enterprises to its supply chain in real time over its platform. “We have enterprises running stuff like loyalty apps with their supply chain. If they deliver on time, they will dynamically adjust your payment. This was not something we did. A company wrote this on our platform.”

According to Mr. Lanng, in much the same way that early TV was simply radio with picture, so too early business software, and early cloud-based applications, are simply replicating existing business models. What they have not done is to allow whole new ways of conducting business, such as dynamic pricing.

This is an area that Sandra Sieber, chair of the Department of Information Systems at Barcelona’s IESE Business School, has been looking at. “Most of the processes of organizations are set up for a time in which we were analog. We only had limited amount of information about what is going on.

“Look at insurance. It makes no sense any longer to have an insurance model that is independent of the actual amount I drive. That was a useful model before, but now it no longer makes sense. The invoice is just another example of all of the lack of thinking that companies have to start.”

But Ms. Sieber sounds a note of caution. She points to B2B exchanges, which were all the hype some 15 years ago. The idea was that buyers and sellers would organize themselves around a web-based hub to allow them to trade with each other in a frictionless, electronic, way. One of the problems, she said, was that improving price transparency may not be in a company’s interest. “If the change is too disruptive, companies will have problems joining the model.”

This is a point echoed by Gianvito Lanzolla, professor in strategy at London’s Cass Business School. “It is not the technology that is the problem,” he said. “It is the capability of companies to implement it.”

Mr. Lanzolla has written a paper looking at 30,000 companies that bought eProcurement software. “After two years of observation, only 12% of the companies had used the technology.”

“From time to time we tend to overestimate what technology can do. It is not only the data transfer that we have to worry about, but There tends be a rather optimistic assumption that companies would be happy in a world where information is perfectly available. It would destroy some advantages on which companies prosper.”

Mr. Lanzolla was also skeptical about the early demise of such well-established business artifacts as invoices and purchase order.

“Most of these processes have a legal value which we cannot bypass until the regulations change. The efficiency that is brought forward by the digital revolution is so powerful that things will change, but we have to see if the regulators will allow this. For example in many places the digital signature is not legal.

“How long will these instruments survive? Longer than you may think.”

But Mr. Lanng is convinced that the transformation is under way and cites the uptake by businesses of his platform. He says 100,000 companies are using the platform. Nor is this an esoteric discussion about the merits of digitization. Rather, it cuts to measurable productivity gains. Mr. Lanng previously worked on a similar project for the Danish government. “When I worked for the government, by enabling completely transparent B2B transactions in the whole country we would increase the speed of business, and that would have a competitive advantage for Denmark.”

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Tech Europe covers Europe’s technology leaders, their companies, and the people and industries that support them — and their ideas. The blog is edited by Ben Rooney, with contributions from The Wall Street Journal and Dow Jones Newswires.